Results of mortgage probe expected in 2011

'Robo-signing' and other activities are under investigation.

December 27, 2010|By Tim Darragh, OF THE MORNING CALL

As homeowners around the country continue to struggle to fend off foreclosure proceedings, a working group of attorneys general and banking officials from all 50 states has been gathering evidence in its probe of potentially improper or illegal lending and servicing practices.

The group, led by Iowa Attorney General Tom Miller, has met a number of times with representatives of five top mortgage lenders and servicers — GMAC/Ally, J.P. Morgan Chase, Citibank, Wells Fargo and Bank of America, said Miller's spokesman, Geoff Greenwood.

"We are having ongoing discussions with these institutions," Greenwood said. "We have also met with groups of investors and a number of consumers … We are well under way with that process."

The investigation came together quickly in the fall, after complaints arose about lenders and servicers using "robo-signing" practices that may have failed to follow proper handling of mortgage notes.

According to Greenwood, the group is probing potentially improper lending and mortgage servicing procedures by the banks, including identifying how many consumers have been affected, what types of practices were used or not used and how they played into consumers' foreclosure cases.

The investigation is touching a nerve, Greenwood said. "This is a very complicated process and we are cognizant of the impact that this open investigation has on these businesses, and more broadly the economy and on the consumers," he said.

Pennsylvania Attorney General Tom Corbett, the incoming governor, signed on to the investigation in mid-October. The state Banking Department also joined and is part of the working group's executive committee.

The state Banking Department referred inquiries to the Conference of State Bank Supervisors in Washington, D.C. A spokeswoman did not reply to e-mail or phone inquiries.

Pennsylvania has some clout in the conference. In November, the group announced the selection of a Pennsylvania Banking Department official, Donald DiBastiani, as chairman of a committee that coordinates the financial examinations and supervision of mortgage lenders and brokers operating in multiple states.

The conference said at the beginning of the investigation that robo-signing, or the electronic transfer of mortgage paperwork, appeared to violate proper mortgage handling standards. It also said other practices, including servicers' failure to have a notary witness the transfer of mortgage documents, "may constitute a deceptive and unfair practice in violation of state laws."

Lenders and servicers have said the problems amount to paperwork issues, at most. But consumer organizations and others argue that the broken paper trail has contributed to the foreclosure crisis and prevented stressed homeowners from getting home-saving assistance.

Corbett's spokesmen declined to answer questions about what, if anything, the governor-elect has done to assist in the probe. Offices for the Mortgage Bankers Association are closed this week.

Greenwood said Miller favors "a series of resolutions" with lenders and servicers. If penalties are determined, Miller would want the funds to reimburse homeowners who have been squeezed frequently in a cycle of mortgage modification applications and re-applications, only to be foreclosed on anyway, Greenwood said.

The group expects it will reach conclusions in its probe in 2011, Greenwood said.

The multistate probe is one of a number of investigations or legal actions related to the real estate collapse that began in 2008. Although Corbett's office has not taken any large-scale actions against the big mortgage companies, other states' attorneys have, as well as the federal government.

The U.S. Securities and Exchange Commission, for instance, this month issued a new round of subpoenas to big banks in its investigation. Miller has teamed with the U.S. Justice Department to look into mortgage fraud in Iowa. In addition, two of the states hit hardest by home foreclosures, Arizona and Nevada, this month sued Bank of America, charging it failed to help homeowners rewrite their loans as promised before foreclosing on them.

According to the most recent report from online foreclosure tracker RealtyTrac, foreclosures nationwide shrank to 262,339, or a 21 percent decline from October to November, in large part because lenders and servicers put actions on hold while they scrambled to fix problems exposed by robo-signing complaints.